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CIRCULAR No

CIRCULAR No. 31/1999/TT-BTC OF MARCH 25, 1999 ON GUIDANCE ON FINANCIAL MECHANISM FOR CAPITAL BORROWING PROGRAM FROM THE FRENCH DEVELOPMENT AGENCY TO DEVELOP ARABICA COFFEE

Pursuant to Decree No. 87-CP of August 5, 1997 of the Government promulgating the Regulation on the management and use of Official Development Aid (ODA) and Decree No. 90/1998/ND-CP of November 7, 1998 of the Government promulgating the Regulation on the management of foreign loans and repayment of foreign debts and related guiding documents;

Pursuant to Decree No. 42-CP of July 16, 1996 of the Government promulgating the Regulation on the management of investment and construction and Decree No.92/CP of August 23, 1997 of the Government on amending and supplementing a number of articles of the Regulation on the management of investment and construction, and related guiding documents;

Pursuant to Decision No. 172/TTg of March 24, 1997 of the Prime Minister ratifying the Program of planting 40,000 hectares of arabica coffee up to the year 2001;

Pursuant to the Agreement on credit opening No. CVN 1025 01 C of November 4, 1998 (hereafter called "Agreement") of the Program of Arabica coffee development (hereafter called "Program") signed between the Ministry of Finance and the French Development Agency ("AFD" for short);

Pursuant to Official Dispatch No. 1258/CP-NN of October 24, 1998 of the Government ratifying the Agreement on credit opening and the mechanism of re-lending the AFD loans for the Program,

The Ministry of Finance provides the following guidance on the financial mechanism for the capital borrowing Program from AFD to plant Arabica coffee of which the Vietnam Coffee Corporation (VINACAFE for short) is the investor:

1. GENERAL PROVISIONS:

1. Loans from AFD for the Program is foreign loans of the Government. Therefore, the whole loan amount shall be accounted in the State budget. The Ministry of Finance shall have to pay to the foreign side when the debt is due.

2. VINACAFE is the investor and the agency organizing the implementation of the Program. It has the duty to use the AFD loan for planned and effective development investment in conformity with the terms provided in the Agreement signed with AFD and to repay to the State budget on schedule as stipulated in the re-lending contract signed with the General Development Investment Department and in conformity with the stipulations in this Circular.

3. The General Development Investment Department shall have to re-lend the AFD loan, manage and recover the loan from the investor. It shall receive a re-lending charge from a credit source of the State as prescribed.

II. SPECIFIC PROVISIONS

1. On the organization of the execution and implementation of the Program:

VINACAFE shall have to organize and execute the implementation of the entire Program:

- To set up the Managing Board of the Program composed of VINACAFE and representatives of agencies of the localities covered by the Program. VINACAFE should work out the Regulation of the Managing Board of the Program at various levels in which it is necessary to determine clearly the responsibility of each level, such as working out the plans (investment, disbursement of loans and reciprocal fund), organizing production, organizing the fiscal service and accountancy accounting..., and also to closely cooperate with the localities in implementing the Program.

- To organize the evaluation and ratification of the component projects of the Program with the participation of the related ministries and branches, and to ensure observance of the current regulations on the management of investment and construction and in conformity with the ratified investment planning.

- VINACAFE shall have to bear all credit risks for the whole Program and exchange rate risk for the sub-loans in foreign currencies.

The Agriculture and Rural Development Bank is designated as the service bank in the transactions of fund drawings for the Program. It shall also be answerable to VINACAFE (if authorized) for the re-lending, managing and recuperating debts from the users of funds (farmer households, provincial companies and State farms...) and shall receive a service charge under the authorization contract signed with VINACAFE.

2. Mechanism of re-lending for the Program:

Through the Ministry of Finance, the Government shall re-lend to VINACAFE all the 212 million French francs borrowed from AFD. The Ministry of Finance shall directly conduct the drawing of AFD loans and re-lend it to VINACAFE and shall recuperate it through the system of the General Development Investment Department.

The conditions for re-lending are provided for as follows according to the component loans:

a/ With regard to the component borrowings for agricultural production, rural infrastructure, small grinding and threshing machines, primary processing stations and quality control establishments (total borrowings valued at 160,645,000 French francs).

- The Ministry of Finance shall re-lend to VINACAFE and recuperate them in Vietnam Dong, the risk in exchange rate to be borne by the State budget. The exchange rate on the day of fund drawing for VINACAFE to sign debts to the Ministry of Finance in Vietnam Dong shall be the rate of exchange between foreign currencies and the Vietnam Dong announced monthly by the Ministry of Finance.

- Re-lending interest rate is 0.41%/month (or 4.92%/year) including re-lending charge of the General Development Investment Department (0.01%/month or 0.12%/year) on the original debt balance of the sub-loans. VINACAFE shall have to bear the full risk on credit.

- The re-lending period is 10 years including 3 years of grace calculated from April 15 and October 15 each year for the fund drawings in each period of six months. More specifically:

+ For the fund drawings conducted in the period from October 16 of the previous year to April 15 of the next year, the grace period is 3 years beginning on April 15 of the next year.

+ For the fund drawings conducted in the period from April 16 to October 15, the grace period is 3 years beginning on October 15.

- VINACAFE may either directly or through the Agriculture and Rural Development Bank make loans in Vietnam Dong to the fund users (farmer households, provincial coffee companies and State farms belonging to VINACAFE) at the uniform interest rate of 0.81%/month (or 9.72%/year).

The difference of 0.4%/month (or 4.8%/year) between the 0.41% interest rate of the sub-loans of the Ministry of Finance borrowings from the Government and the 0.81% interest rate of VINACAFE loans to the users shall be left to VINACAFE for use in organizing new re-lending, management of the loans and setting up credit risk-offset fund and also replenishing the debt repayment sources for the component borrowings to defray the costs in research, training, management and reserve (see (b) hereunder) .The level of charge paid to the unit mandated for re-lending by VINACAFE shall be agreed upon by VINACAFE and the mandatory unit in conformity with the prescribed regime of the State.

- The interest fine for delayed payment shall be stipulated by the General Development Investment Department in the re-lending contract signed with the investor but not lower than the interest fine for delayed payment prescribed in the Agreement.

- With regard to the payment of the interest on borrowings by coffee planter households in the period of capital construction of the coffee plant, VINACAFE shall directly discuss with the provinces for concrete measures of handling.

b/ For the component loans to invest in processing plants and to pay for the cost of research, training and managing and reserve (with total loans valued at 50,676,000 French francs)

- The Ministry of Finance shall re-lend it to VINACAFE and recuperate the loan in French francs.

- Re-lending interest rate is 4.5%/year including re-lending charge of the General Development Investment Department (0.2%/year) calculated on the balance of the original re-loan.

- The re-lending period is 10 years including 3 years of grace calculated from April 15 and October 15 each year for the fund drawings in the six-month periods. More concretely:

+ For the drawings conducted in the period from October 16 of the previous year to April 15 of the following year, the grace period is 3 years from April 15, of the following year.

+ For the drawings conducted in the period from April 16 to October 15 the grace period is 3 years beginning on October 15.

VINACAFE shall have to make calculations to balance the foreign exchange to pay the loan and shall have to bear the whole risk in foreign exchange and credit for these components.

- The interest on fine for delayed payment shall be prescribed concretely by the General Development Investment Department in the re-lending contract signed with the investor but shall not be lower than the interest rate on fine for delayed payment prescribed in the Agreement.

- In addition, VINACAFE shall have to bear all the cost abroad (if any) of the whole borrowing to be paid to AFD. These expenditures shall be announced by the General Development Investment Department and shall be directly collected from VINACAFE.

3. Guidance for fund drawings:

Reciprocal fund:

Under Decision No. 172/TTg of March 24, 1997 of the Prime Minister, domestic capital is 331 billion Dong taken from sources of the agriculture promotion program, funds for job settlement, eradication of hunger and alleviation of poverty, sedentarisation of farming and population, programs 327.773..., self procured fund of VINACAFE and of various coffee enterprises, and from investment by the population themselves.

After the localities covered by the project have calculated and balanced their need in reciprocal fund from the sources mentioned above, if there is still not enough reciprocal fund as prescribed by Decision No.172/TTg of March 24, 1997 of the Prime Minister, VINACAFE shall have to coordinate with the localities to work out the plan to borrow investment credit fund of the State to make up for the annual reciprocal fund as required by the implementation tempo of the Program. The plan for reciprocal fund must be worked out at the same time as the plan of disbursement of the AFD loan. The reciprocal fund needed as supplement from the investment credit source mentioned above shall be calculated by VINACAFE which shall discuss with the Ministry of Planning and Investment and the Ministry of Finance (General Development Investment Department) to distribute it to each locality or unit as stipulated in Joint Circular No.06/1998/TTLT-BKH-BTC of August 14, 1998 of the Ministry of Planning and Investment and the Ministry of Finance guiding the mechanism of managing the reciprocal fund for the programs and projects using ODA fund. The signing and implementation of the investment credit contract according to the above fund distribution plan shall be discussed by VINACAFE and the localities covered by the Program with the agency providing preferential credit loans.

Drawing of AFD loan:

On the basis of the Agreement and the tempo of implementation of the Program, VINACAFE shall work out the plan of annual disbursement of AFD loan and send it to the Ministry of Finance in which the following stipulations of the Agreement shall be given special attention:

- Before drawing fund, VINACAFE shall work out and send to the Ministry of Finance an instruction for implementing the Program and the re-lending conditions and send it to the last fund user, plans and estimates of prices, the contract on supply of services and equipment... so that the Ministry of Finance together with AFD may examine and certify the distribution and use of the credit.

- The goods and services funded by AFD loan must originate from France or Vietnam.

- The investor shall have to strictly abide by the current regulations on procedures of selecting the contractor, the documents on bid invitation and the result of the bids and report them to the Ministry of Finance (the Foreign Financial Relations Department and the General Development Investment Department) and AFD, if so requested.

- Any change in the distribution of expenditures and the financial plan of the Program compared to the stipulations in Appendix 2 to the Agreement must be subject to prior consent of the Ministry of Finance and AFD.

Depending on the actual needs of the Program and at the proposal of VINACAFE, the drawing of AFD loan may be achieved in one of the following modes:

a/ Re-funding the expenditures already paid by VINACAFE:

Basing itself on the proposal and attached receipts and vouchers of the expenditures already paid by VINACAFE, the Ministry of Finance shall ask AFD to draw fund to repay into the VINACAFE, accounts at the Agriculture and Rural Development Bank. The payment orders may be in the form of copies certified by VINACAFE together with the dates of payment. For the proposals to draw fund to pay receipts valued at less than 3,000 French francs, VINACAFE only needs to send a copy of the list of expenditures to the Ministry of Finance (Foreign Financial Relations Department) so that the latter may fill the procedures of fund drawings with the French side. In addition, at the request of AFD, VINACAFE may have to supply necessary documents to prove that these expenditures have been effectively invested.

In particular, for the payment of the volume of capital construction completed under the building and assembly contract, there must be a test on completion record and the price bill certified by the development investment agency.

b/ Direct payment to the supplier:

This mode shall apply chiefly to the contracts of building and assembly or supply of machinery and equipment signed with the suppliers or clearance of consunlting contracts signed with consulting companies. On the basis of the terms stipulated in the signed contracts and the claimant receipts already certified by VINACAFE with proposals of payment, the Ministry of Finance (Foreign Financial Relations Department) shall fill procedures to ask AFD to make direct payment to the suppliers or the consulting companies.

In particular, with regard to the payment of the volume of capital construction achieved under the building and assembly contract, there must also be a test on completion record and the price bill certified by the development investment agency sent to the Ministry of Finance (Foreign Financial Relations Department) to ask AFD to pay directly to the building and assembly contractor.

c/ Fund drawings in the form of repeated advance:

On the basis of the annual coffee planting plan worked out by the investor and approved by the Ministry of Finance and AFD, the Ministry of Finance may request AFD to draw fund in the form of annual repeated advances and transfer it into a special account opened by the investor at the Agriculture and Rural Development Bank.

From the second fund drawing on, before each fund drawing, the investor shall have to make and send to the Ministry of Finance a dossier to be forwarded to AFD for fund drawing including:

+ Announcement of the special account of the previous fund drawing,

+ Statistics on the use of fund of the previous fund drawing,

+ Total expenditures and certificate of origin of the related equipment,

+ Information on the last fund user, debt contract and the corresponding acreage of coffee planted,

+ Certificate of expenditures paid by VINACAFE and certificate of the development investment agency on this payment.

In addition, the investor shall have to supply to AFD the original dossiers and vouchers and other related documents for inspection and comparison if so requested. For the last fund drawing, the above said dossier must be sent to the Ministry of Finance and AFD six months at the latest after this fund drawing is completed.

4. Management of re-loans and payment of borrowings

The investor shall have to sign re-lending contract with the General Development Investment Department according to the re-lending terms stipulated in Part II; fully repay on schedule the borrowings according to the re-lending contract and take responsibility before law for the right use of the loan.

On the basis of the actual date of fund drawing by AFD and the Notice on the approval of the projected fund drawing proposed by the Foreign Financial Relations Department to fill procedure for revenue and expenditure recordings in the budget, the General Development Investment Department shall have to notify VINACAFE of the fund actually drawn and propose that VINACAFE sign the debt acknowledgement deed.

The General Development Investment Department shall have to check the use of the borrowings and the use of the properties in the form of borrowings by the Government, recover the re-loan and inform the Ministry of Finance of this recovery.

5. Reporting regime:

Every six months, VINACAFE shall have to report to the Ministry of Finance (the General Development Investment Department, the Foreign Financial Relations Department), the Ministry of Planning and Investment and the controlling agency on the situation of receiving, use and repayment of the AFD loan and the reciprocal fund.

VINACAFE shall have to supply to the Ministry of Finance and AFD the annual audit report and all other information about the financial situation if so requested as provided for in the Agreement.

The investor shall have to make and send the integrated report on the implementation and the report on the final accounts of the Program to the Ministry of Finance (the Foreign Financial Relations Department and the General Development Investment Department) and to AFD three months at the latest after the Program is concluded.

III. IMPLEMENTATION PROVISIONS

This Circular takes effect 15 days after its signing. In the process of implementation, if any difficulty arises, the Vietnam Coffee Corporation, the People�s Committees of the provinces covered by the Program and related agencies should report in time to the Ministry of Finance for examination and settlement.

For the Minister of Finance

Vice Minister

LE THI BANG TAM